Jyrki Katainen,Vice-President of the Commission. – Mr President, honourable Members, let me first thank you for introducing this very important topic of sustainable finance. Vice-President Dombrovskis and I are jointly responsible for the Capital Markets Union and this obviously has a close link to the sustainable finance issue.

Last year we witnessed some landmark international agreements with the adoption of the Sustainable Development Goals (SDG) and the Paris Climate Agreement (COP21). Implementing a transition towards a more sustainable world requires determined efforts in many policy areas. In terms of public finance, the EU is leading the way due to its commitment to spend at least 20% of its 2014-2020 budget on climate-related projects and policies.

Work is ongoing to increase the availability of green funds through the European Fund for Strategic Investments (EFSI). But we need to move beyond public finance and to further reach out to private investors. The financial sector has a role to play. The Capital Markets Union initiative addresses the importance of long-term and sustainable investments. In the most recent CMU Communication, the Commission has indicated a need for a broader strategy on sustainable finance. This is necessary to support investment in clean technologies and ensure that the financial system can finance growth in a sustainable manner over the long term. The Commission also monitors developments in the green bond market. A study on the potential of the bond market to finance resource-efficient investments is under preparation. The final report will be ready in November.

The Commission has also adopted initiatives to increase company transparency, such as the Directive on non-financial reporting that will be transposed by the end of 2016, and the related non-binding guidelines, currently under preparation. Last July, a political agreement on IORP2 was achieved that will require occupational pension funds to consider taking into account environmental, social and governance factors in their investment decisions. The Commission is also assessing the follow-up to the recent public consultation on long-term and sustainable investment which emphasised the importance of environmental, social and governance issues for the long-term performance of companies and investors, and the challenges institutional investors faced in this area.

Since sustainable finance has no boundaries, work must also be done at global level. The Commission supports the work of the FSB industry-led Task Force which will provide recommendations on climate-related financial disclosures early next year. We will take these into account as much as possible when preparing the upcoming EU guidelines on non-financial reporting.

At the same time, the Commission is a member of the G20 Green Finance Study Group (GFSG), which recently identified options on how to mobilise private green investment; we will also continue this work under the German Presidency.

Beyond relying on public finance and mobilising the private sector, the Commission is also looking at how, and to what extent, climate change implications could affect the financial sector or even be a source of systemic risk to it. Some EU institutions and central banks of EU Member States have already begun analysing this. Last February, the European Systemic Risk Board proposed enhanced disclosures and the incorporation of climate-related prudential risks into stress tests as policy responses to mitigate risks for the financial system. This may be a suitable trigger to integrate considerations about long-term environmental risks and opportunities into the mindset of private investors.

Undoubtedly more needs to be done at EU level, and in a comprehensive manner. That is why the Commission will establish an expert group on green finance that will help formulate the EU strategy. This group will provide advice on how to mobilise private capital for sustainable and green investments; and to better understand and deal with the financial risks related to the transition to a low-carbon economy. The expert group will be composed of senior experts representing various stakeholders of the green and sustainable finance spectrum.

Honourable Members, I am interested to hear your views on the ongoing work streams and also I am expecting some input from your side for future work streams.

Molly Scott Cato, on behalf of the Verts/ALE Group. – Mr President, now that EU has ratified the Paris Agreement, we have a tremendous challenge to decarbonise our economy, but also a tremendous opportunity. Humanity’s journey into the fossil fuel era was marked by the enclosure of common resources, monopoly control and the growth in inequality. Finding ways to develop and invest in renewable resources offers a wonderful opportunity to do things differently. This is why, as Greens, we believe that sustainable finance must also be equitable finance. The overwhelming majority of finance for the green transition so far is private finance. Through the creation of green bonds, bankers can make use of what financiers like to call ‘the magic of money’ to multiply an initial stock of capital many times over, with the value of this multiplication staying with the shareholders and employees of the bank.

So the need to invest in a sustainable future could be used to swell bank profits, exacerbating inequality. How much better it would be if the magic of money could be used for the benefit of the citizens of the world, if we funded the transition through public banking and through community ownership. Then the value of money creation could be invested for public good and the value of renewable energy could accrue to local communities. The German KfW Bank provides an excellent model of such a method of capturing the power of banking for public good and I think such a model should be at the heart of sustainable finance.

I have also championed the idea of green quantitative easing to ensure that some of the vast amount of money being created by the European Central Bank should be channelled towards green investments. I believe the Commission and Parliament need to work together to undertake a critical review of the impact of the current QE programme and find ways to ensure that it is redesigned to play a central role in the financing of the green economy in Europe.

For some time Greens in this House have been ringing the alarm bell about the systemic risk to financial services, products and companies from assets which are grossly overvalued in the context of the EU’s policies to tackle climate change. Since at least 75% of fossil fuel reserves have to be kept in the ground if we are to keep within the 2° global warming limit agreed in Paris, companies, banks and pension funds that have significant fossil—related assets on their books are vastly overvalued, a phenomenon known as the carbon bubble. McKinsey and others have estimated that 30% to 40% of fossil fuel companies’ value could be threatened by this carbon bubble. Mark Carney, Governor of the Bank of England, has responded to this alert, as has Mario Draghi, as evidenced in the report produced by the European Systemic Risk Board.

We have taken an important first step to tackle the carbon bubble in the specific case of pensions, as was mentioned by the Commissioner. The Parliament has voted that the extent of these stranded assets must be notified to the regulatory authorities, but we should not stop there. It is not only pensions that are at risk. Insurance companies are also holding large quantities of stranded assets. Both the European Systemic Risk Board (ESRB) and the Ecofin Council have discussed the idea of undertaking carbon stress tests for banks and we need to make urgent progress on that front. We should also consider other options put forward by the ESRB, such as regulatory loss absorbency requirements, specific capital surcharges based on the carbon intensity of individual exposure, and large exposure limits applied to the overall investment in assets deemed highly vulnerable.

We can also learn from others. France, for example, has introduced the world’s first mandatory climate disclosure requirements for institutional investors and the US Securities and Exchange Commission is now also taking steps towards mandatory disclosure requirements. The European Commission should make a proposal for similar legislation EU wide. These are just some of the actions governments and central banks are taking to address the risks posed by the carbon bubble. The EU needs to take similar action and, in this context, we welcome your proposal for a sustainable finance expert group.

Since the private finance market will inevitably play an important role in financing the transition, it is important that it is properly regulated and focused. The EU is proud of its leadership role on climate change, but is falling behind on the issue of sustainable finance. London has launched a green finance initiative and Luxembourg has followed suit, as has France. China is working on green finance, as is Bangladesh. There is a veritable climate finance race going on, with countries vying to be the first to turn their capital markets the greenest the fastest, investing in climate solutions instead of climate problems. The EU should set the highest standards in this field. In particular, we should introduce clear criteria for what constitutes a green bond. At present this is something of a Wild West, with bonds claiming green status on the flimsiest of justifications.

Vice—President Dombrovskis, we are pleased to see progress on this important issue since the departure of Commissioner Hill, but time is also pressing. International developments are moving fast, from the G20 Green Finance Study Group to the FSB Climate Disclosure Task Force. We should ensure that we are part of these developments, which is why it is so important that you move rapidly to establish your expert group and the publication of an EU sustainable finance strategy should not be far behind. This will give us enough time to come forward with timely legislative proposals.

So we welcome this opportunity to debate the economic opportunities offered by the urgent need to transition to more sustainable industrial and energy systems. We urge that the needs of climate and environment are placed first when sustainable finance is being developed and that attention is paid to the opportunities to achieve greater equity alongside greater sustainability.

Seán Kelly (PPE). – Mr President, firstly, I must say that, looking back over the last two years when President Juncker announced his EFSI plan, many people very dubious and when Vice-President Katainen was handed what many saw as the poison chalice, they felt that this could not actually be successful. But he has worked very hard on the area, he has visited all over Europe and here in Strasbourg and in Brussels. As a result, it has actually been very successful, and only today it was announced that EFSI has helped to create 830 000 jobs – it is worth repeating, 830 000 jobs! He deserves great credit for that, as does the Commission, because if it had failed, they would have been criticised and ridiculed, which many people expected. So now that it has started, the momentum is behind it and people will believe in it. I think you will get far more investment, especially when he introduces regulatory reform to undo or eliminate any obstacles there for the private sector to invest. That is going to be very important, and also of course we recently passed the creation of the Capital Markets Union, and that is going to make a huge difference in terms of new models and creating new ways of financing.

So those three aspects – EFSI, regulatory reform, and the Capital Markets Union – are going to be wonderful in terms of creating sustainable finance into the future. Also I was delighted to hear him in his opening remarks refer to green financing. Of course, the climate has changed dramatically for that in the past 12 months, as a result of the Paris Agreement and now Marrakesh, where the agreement will be actually turned into action. So it will be imperative to invest in the green economy; it will be the only show in town and that should unlock huge opportunities for businesses, and for Europe, indeed, to become a world leader. So, well done to Vice-President Katainen and everyone involved. They deserve credit; they do not always get it.

Jasenko Selimovic (ALDE). – Mr President, this week we ratified the Paris Agreement. The challenge of keeping global warming below two degrees will require a substantial reduction in greenhouse gas emissions. This process of decarbonisation provides opportunities for the European economy and industries.

However, this transition can also create risks. The European Systemic Risk Board warned about the adverse scenario where the transition to a low carb economy comes late and abruptly. In this case, the cost of the transition will be higher, with severe effects on economic and financial institutions. In other words, our financial institutions’ pension schemes and insurance companies have to adjust to a new reality very soon in order to avoid potential risk for our economic system and economy.

This is why it is crucially important that the Commission further assesses the systemic risk associated with the low carbon transition and proposes, where necessary, transparency requirements and policies to mitigate systematic risk as much as possible. In that way, the Commission will enrich financial markets with more information so the market itself can address the risks. It is necessary to do it quickly and I insist that the Commission does not hesitate on that matter.

Jyrki Katainen,Vice-President of the Commission. – Mr President, I would like to thank Members very much for a good discussion and for their ideas. A few colleagues, especially Mr Kölmel and Mr Jakovčić, referred to the Stablility and Growth Pact and this is obviously part of the interpretation on sustainability, even though the focus of today’s discussion was maybe more on carbon and environmental related issues. But when talking about a more general interpretation of sustainability, the Stability and Growth Pact issues are very, very important and the rules must be followed. Otherwise, the basis of public financing is on a slippery slope.

I would like to start by making one more general remark. When talking about sustainable financing or green financing, I would like to avoid marginalising this topic to only very narrowly interpreted projects, because sustainable financing is supposed to be mainstream – over time – and not just complementary to main financing. That is why our focus as legislators and regulators should be to look at the needs and the possible changes in our regulatory environment in order to encourage the private sector to change their business models to be more sustainable; and also in the banking sector to look if there is anything on the regulatory side that we should change in order to make it possible for the private banks then to address the needs of, for instance, businesses in the circular economy. I have met some bankers who have said that they have a completely new set of clients, that the business models have changed from linear to circular and that is why sometimes small and medium-sized enterprises’ balance sheets look different today from how they did earlier. That is why they are developing new financing products for these kinds of companies. That is why, as Mr Kelly said, we have to look very openly at the need to change regulation, but not rush too early to change everything; that is crucial.

Mrs Scott Cato raised several very important points. You referred to the importance of public financing when looking at the EU opportunities in financing sustainable projects. There are plenty of opportunities, as we all know – structural funds, of course, but also EFSI. We are now proposing to extend EFSI’s lifeline so that it will last longer, and also its firepower will be significantly higher. We will also propose that some 40% of EFSI financing should be on COP21-related projects. It can of course mean lots of different things, but sustainability should in any event play an even more important role than at the moment in EFSI operations.

The carbon stress tests and the French model of disclosure are both very interesting opportunities. The Commission is following the results and further work on both these fields. Carbon stress tests, as proposed by the European Systemic Risk Board, could be a very important risk management tool. However, the complexity of designing appropriate test scenarios and of collecting the data necessary for conducting tests should not be underestimated, especially given the lack of harmonisation in defining what is green. The analytical work at G20 level within the Green Finance Study Group should help us identify optimal methodologies for such stress tests. DG FISMA is actively involved in this project. It would be excellent if we managed to find a global definition of these issues because then the impact would of course be bigger. So there are several work streams at a global level, but also at European level, which are addressing the same issue and we can learn from each other. Hopefully, next year we will be wiser and we will have new results from various working groups.

My final point is about EFSI. I come back to the EFSI issue because, as you know, EFSI is a demand—driven fund, and overwhelmingly the biggest challenge we have at the moment is that we have to raise awareness amongst possible investors about what EFSI can do. I have been a little disappointed that, for instance on the circular economy field, investors have not found EFSI as much as I would hope. Your role as MEPs and our role in the Commission is just to raise awareness about what EFSI can do and what it has already done in various Member States and try to copy the best practices and best models. For instance, in France there is a fantastic example of energy-efficiency investment where the public—private partnership companies collected together 40 000 houses or apartments for retrofitting in order to reduce energy consumption. I have just heard that in the average apartment, the energy saving after they been retrofitted is EUR 80 per month for a family living in an apartment. This of course has a big impact on the climate policy too.

I would like once again to thank Member for your ideas. Let us continue to work together in this field.